IC Markets Europe Fundamental Forecast | 28 August 2023
What happened in the Asia session?
After decreasing 0.8% in June, Australian retail sales came in stronger than expected with sales growing 0.5% MoM versus the forecast of 0.2%. Most non-food industries led the gains with department stores recording the largest growth. The Aussie is currently trading around 0.6430 and is likely to see further gains today.
What does it mean for the Europe & US sessions?
With UK markets closed for a bank holiday, we can expect lower trading volumes but activity should pick up as soon as US markets come online. Demand for the greenback has been weak thus far causing the dollar index (DXY) to edge lower and a break below the 104.00-threshold is all but certain during the Europe session or even earlier.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY could come under pressure today despite Federal Reserve Chairman Jerome Powell’s hawkish opening remarks at the Jackson Hole Symposium last Friday. The 104-level will be a key threshold to take note of today.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold prices dived as low as $1,905/oz on the back of Federal Reserve Chairman Jerome Powell’s hawkish opening remarks at the Jackson Hole Symposium last Friday. Strong demand for the US dollar caused this precious metal to fall sharply before reversing some of the losses. This precious metal gapped up slightly at today’s open to climb as high as $1,917/oz and could edge higher.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
After decreasing 0.8% in June, Australian retail sales came in stronger than expected with sales growing 0.5% MoM versus the forecast of 0.2%. Most non-food industries led the gains with department stores recording the largest growth. The Aussie is currently trading around 0.6430 and is likely to see further gains today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 2023.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi, just like its Pacific neighbour, opened strongly this morning to climb as high as 0.5925 as demand for the greenback looks weak this morning. The 0.5900-level will be a key threshold to watch today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
Unemployment Rate (11:30 pm GMT)
What can we expect from JPY today?
Japan’s unemployment rate has remained relatively stable over the past one year with June’s reading edging lower to 2.5% from 2.6% in the previous month – July’s reading is likely to print within a similar range. With demand for the US dollar surging last Friday, USD/JPY touched 146.60 but it pulled back during the Asia session this morning.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
After hitting a low of 1.0770 last Friday, the Euro rebounded strongly and is currently trading above 1.0800 this morning – it is likely to climb higher today.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 14 September 2023.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF jumped as high as 0.8880 last Friday before erasing almost all of the gains. This currency pair dropped below 0.8840 during the Asia session and is likely to fall towards 0.8800 by the end of the day.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
U.K. Bank Holiday
What can we expect from GBP today?
UK markets will be closed today for a bank holiday and lower trading volume should be expected during the European trading hours. The Pound opened strongly today and is climbing past 1.2600 as Asia markets came online.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the surge in demand for the US dollar, USD/CAD hit 1.3640 last Friday but has since pulled back quite sharply to now trade under 1.3600. This currency pair is likely to slide lower today.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Despite a strong finish on Friday, crude oil prices registered a second consecutive week of decline. With oil fundamentals remaining relatively weak, crude prices are pulling back this morning with WTI oil trading under the $80 per barrel threshold – further downward pressures can be expected.
Next 24 Hours Bias
Medium Bearish
